Oculus VR has had a whirlwind year. It’s the kind of epic startup story that every struggling entrepreneur can identify with. The story of this company shows how you can start with an impossible dream, cross a chasm of skepticism, and then find an army of welcoming fans on the other side that can give your idea the momentum it needs.

The Irvine, Calif.-based game startup resuscitated the virtual-reality market when founder Palmer Luckey gave a prototype of his Oculus Rift virtual-reality goggles to gaming legend John Carmack, who sang its praises at the Electronic Entertainment Expo trade show in June 2012.

Luckey (above left), along with game veteran Brendan Iribe (right), launched a Kickstarter campaign that raised $2.4 million. The more they showed it, the more enthusiasm they saw among game developers and the public. They recently began selling developer systems for $300.

We caught up with Luckey and Iribe at the company’s headquarters in Irvine. Here’s an edited transcript of part one of our conversation. (See part 2 of our interview here.)

GamesBeat: Can you talk about how you got started with the Oculus Rift?

Palmer Luckey: I’ve been a PC gamer for a long time, and a hacker-maker-tinkerer-enthusiast type of person. I spent a lot of my time trying to figure out how to get the best gaming experience possible – dumping money into PC components and spending all my time upgrading my PC. I started to think to myself, what’s the best gaming experience you could possibly have? Hypothetically, it seemed like virtual reality was the Holy Grail of where you could go with gaming.

Above: Palmer Luckey at Oculus VR

Image Credit: Dean Takahashi

I assumed that there had to be technology out there that you could go buy. I got into virtual reality not to build anything. I just wanted to buy something. If the Rift had existed when I got into VR, I wouldn’t have built anything. [laughs] So I started to buy head-mounted displays. A lot of them had big issues. They were heavy. They had low resolution. They had bad head tracking. I kept buying more and more, from consumer gear all the way up to military and industrial gear.

GamesBeat: Was that even still a real market? They were popular a decade earlier, right?

Luckey: A lot of this stuff was old consumer gear from that period. But there’s been a professional VR market for a while. Things that usually cost tens of thousands of dollars, and they use them for data visualization or medicine or the military. The military is the big money player there. I started combing government auctions and industrial equipment liquidation, trying to pick up old and fairly recent VR gear affordably. Even the stuff that originally cost, say, $90,000 – I got good deals on it, because they usually didn’t know what they were selling – wasn’t what I wanted.

So I decided I was going to give it a shot and try to build something. I didn’t necessarily expect that I’d build something better, but I thought it would be a fun exercise. This was maybe four years ago.

Brendan Iribe: This was after you’d amassed a fairly large collection of VR headsets.

Above: Oculus Rift

Image Credit: Dean Takahashi

Luckey: Yeah. I have the world’s largest private collection. I think it’s 56 unique units now, not including the ones I’ve made. That’s a lot of head-mounted displays.

Iribe: None of which did what you wanted them to do.

Luckey: No. There were things that had good components, like great field of view, but they weighed 20 pounds and were on a spring-loaded arm clamped to your desk or something. There was nothing that had all of the good features. After looking at all of them and trying to figure out what they’d done wrong in the past and what they’d done right—It’s not like they did every single thing wrong. A lot of it was just not having good enough technology. So I tried to figure out how you could apply new technology to a lot of these problems that hadn’t been solved in the past.

It became pretty clear that mobile phone technology had so far advanced from what it was in the past. I started using mobile phone displays and tracking components from there.

Iribe: These are things that didn’t even exist in the ‘90s when they were doing a lot of those VR efforts. They didn’t have the smart screens, the large displays.

GamesBeat: You had smartphone screens, but you didn’t really have an iPad yet, right?

Luckey: Not quite. When I was getting into this, there wasn’t the huge explosion of tablet computers like you see today. The panel I was originally using was designed for a Fujitsu ultramobile PC. Remember those things, when those were the shit? It was their U810, I think, that was the first to use it. This little tiny 5.6” screen in a clamshell laptop. It had a touch screen layer on it. It was a super high-res 1280 x 800 on a 5.6” screen, a really high res for the time. That was the first screen I started using.

As time went on, though, all of a sudden you had all these phones trying to fight a resolution war. All the screens for tablets and phones were going up drastically in resolution.

GamesBeat: How did you start getting some buy-in from other people?

Luckey: It was just me for the longest time. My goal wasn’t necessarily to get buy-in. After building something I thought was really nice, I decided I was going to put the Rift on Kickstarter as a kit, basically. You’d have to put it together. Everyone would get money together. We’d group order enough parts for 200 of them, so it would be a lot cheaper, and we could all build something that had the same specs and a bunch of VR nerds could all mess around with it.

It evolved a little bit before E3, when I was talking to John Carmack [the graphics wizard at id Software, maker of the Doom series]. I had given him a prototype. He told me, “There will be a lot of developers that want to buy one of these things and they don’t have the skills to put one of them together.” Then Carmack showed it at E3 with DOOM 3, and it started getting a huge amount of attention. When John Carmack says, “I think this is the future of gaming,” it gets a lot of attention. That was what helped me get buy-in the most, the fact that Carmack showed it to so many people in the press and the industry.

Above: Palmer Luckey and Brendan Iribe of Oculus VR

Image Credit: Dean Takahashi

GamesBeat: At what point did you do the Kickstarter?

Luckey: John showed it off at E3 in June. He talked to some media about how I was going to be doing a Kickstarter. My plan was to launch the Kickstarter some time in mid-to-late June. We ended up delaying it so we could spend some time making it not terrible. This was 2012, last year. We launched the Kickstarter August 1, less than two months after E3.

Iribe: We got hooked up with Palmer almost right after E3, within a few weeks. I got a call from a friend who’s known Palmer in the VR space, and they said, “You need to meet this fellow. He’s doing this really cool VR thing.” When I heard that, I said, “Well, VR’s never worked.” [laughs] He said, “No, trust me. He’s working with Carmack. Carmack showed it at E3. Just Google it.” I had heard something about it, and when I looked it up and saw all of the incredible press that it got, it was one of those moments where you think, “I’d hate to be the guy who had the opportunity to see it and then passed, and it turned out to be something great.”

That’s when I got Mike and Nate together – we had all worked together at Scaleform, and then we were at Gaikai at the time – and said, “Let’s go see this VR thing.” We met Palmer and saw the demo in a meeting room in a Long Beach hotel. Right away, the first time–I still have pictures of it. A lot of people say this, that they always remember the first time they tried the Rift. It has such an impact on you. Certainly I’ll remember it, the feeling when we first looked through the experience. It was just incredible. Right away, the hair on the back of my neck stood up. It worked well enough to be something real.

GamesBeat: You helped refine the pitch?

Iribe: Palmer had already named it Oculus, the Rift, and he had the idea for a Kickstarter, but instead of a shaky-cam one-man Kickstarter, if we got together and put some funding behind it–Mike and I agreed on the spot that we’d put some money into it to make the Kickstarter more professional. We got some people to help film it and do some graphics and create more of an exciting story behind it. We also changed the strategy from kits to premade dev units, because we’d already started taking bets internally – “How many units could we really sell? What’s the potential here?” The feeling was, with Carmack and Valve supporting the project, with Cliff at Epic and David Helgason at Unity, with enough of these big names who’d all seen the demo and said, “This is great,” it would probably get a lot of attention. We needed to be ready to have this go out to a lot of people. So we focused more on dev kits that would be the precursor to a consumer version, instead of a do-it-yourself product that was just for hackers and enthusiasts.

Above: Palmer Luckey and Brenda Iribe of Oculus VR

Image Credit: Dean Takahashi

GamesBeat: And that was the point where you formed a real company?

Iribe: Yep. We raised $2.4 million.

GamesBeat: Were you already going into that with a lot of attention, or did something happen in the course of it?

Luckey: There was a really small amount of attention beforehand, these few hundred people that had been planning on buying the kits. As soon as it launched, though, it got covered by a ton of media. That brought a ton of people in.

Iribe: If you have a Kickstarter video with Gabe Newell and Michael Abrash and Cliff Bleszinski and David Helgason and John Carmack all saying, “You should support this Kickstarter too” it really works. You’re going to get some coverage, most likely.

GamesBeat: There was also this hunger in gaming, I think, to have something new come along. The consoles were in their seventh year.

Luckey: That’s one reason the Ouya did so well, I think. It launched on Kickstarter around the same time. It’s another idea that was really different from something out there right now.

GamesBeat: Right after the Kickstarter closed, what became the most real possibility for you guys? What did you realize you had?

Luckey: We had an obligation to fulfill 7,400 orders for developer kits, which was an awful lot. More than any of us expected. There was still a lot of ongoing demand beyond just that, too. People would e-mail us. “I missed your Kickstarter! I really want one!” So how do we continue to let people purchase developer kits and get these things into their hands as fast as possible?

Iribe: We had a super short timeline. We were hoping to have them made and shipped within four months, but we got so many orders that it was really hard to do. It’s much easier to do when you expect to sell a few hundred kits and raise maybe $250K. When you raise 10 times that much—We beat our goal by like 940 percent.

GamesBeat: What’s the most expensive thing in this whole setup? I guess it’s the screen, right?

Luckey: Yes. After that, it’s the related drive hardware, and then the sensor. A lot of time, effort, and parts go into the sensor.

Iribe: And the headset itself, all the plastic that goes into it. The form factor there.

Luckey: The thing about the plastic is that it’s not necessarily the most expensive part, but it takes the longest time. It takes a long time to make plastic molds. You can’t just say, “Oh, we’ll go buy those parts and it’ll work.” You have to tool these molds. They cut them out a bit at a time and it takes weeks or months to do it.

GamesBeat: You pushed your date back to get those?

Iribe: Yeah, to get that volume done. There were also some key decisions to make. It wasn’t clear in the very beginning if we were going to make the motion sensor ourselves, or buy a sensor off the shelf. If we’d bought the off-the-shelf sensor, it could have helped accelerate things, but we saw a number of shortcomings to that, and we saw a number of opportunities to make a better experience if we built our own sensor. We had control over the code and the firmware and the whole thing. We got very lucky, finding Nirav Patel. Just after the Kickstarter ended, Nirav jumped on board.

Luckey: Like, the ultimate VR motion sensor. Rather than just something built for phones or remotes, he was designing a sensor from the ground up for virtual reality.

Above: Epic showed Unreal Engine 4 running on Oculus Rift at E3

Image Credit: Epic Games

GamesBeat: The Kickstarter seems to have gotten you into almost liveblogging this. You’re telling people, transparently, what’s going on.

Luckey: That was kind of always the plan.

Iribe: It was always Palmer’s plan. [laughs] We come from the game technology market, where we weren’t in an openly-blogging kind of place. We were creating proprietary technology. Palmer was very much about this forum and openly talking about it. When we got together, Palmer made it very clear that that was important to the project.

Luckey: I’d always done that, even before VR. Before I got into VR, I used to run an electronics enthusiast community called Mod Retro. I posted tons of guides, all my projects, how to do things. Going into VR, I did the same thing. “Here’s my project. Here’s how I did it. Here’s all the parts I used. Here’s some of the difficulties.” I did that for years. When we did the Kickstarter, I wanted to keep doing that same thing, sharing what we’re doing and how we do it.

GamesBeat: There’s value in how it comes back to help you, it seems. You learn from other people.

Iribe: You get feedback from the community. You get feedback from partners, guys like Valve and Carmack. They were pretty attracted to the project because of how transparent we were being about it. That’s important to them.

Luckey: It’s also a good hiring tool. If you’re putting what you’re doing out there—

Iribe: That might be the best part of it so far.

Luckey: They see what you’re doing, especially people who say, “Wow, they’re actually doing things right.” You don’t have to wait until you ship a project for them to see the cool stuff you’re working on. You say, “This is what we’re working on. These are the cool problems. We’re looking for people to solve these problems.” All the time, people say, “Hey, I saw your blog post about this. I’m an ace in this space. I think I can help with this.” We never would have heard from that good of a person if we weren’t putting all the problems we have out there.

GamesBeat: Do you think this open style is also helping you get this out faster?

Luckey: I think developers are a lot more excited, because they get to see—It’s not like we release something and there’s no news for a year. They get to see that we’re actively working on something. That’s important for building developer confidence. They can see we’re moving forward and they trust we’re going to solve our problems. We showed off the HD prototype at E3. We’ve been talking about it a lot. It’s good for them to be able to see that progress. “Okay, I believe these people are solving their problems.”

Luckey: Yeah. And not just the software. The hardware is improving too.

Iribe: Each one of those iterations has tweaked components in it. Of course the HD one has an HD screen in it, but the motion chip also got better. In the very beginning, it wasn’t our own motion chip. During the Kickstarter days and at a lot of those events, we were showing a different motion sensor. Then switched over to use ours and perfect it. It’s continued to get better. The algorithms, the software in it – things like predictive tracking, where we’re predicting where you’re going to be to reduce the latency. We just did a big blog about that. That has gotten a lot better over the last year. In the beginning, we didn’t really have any predictive tracking, but it quickly got added and got better. It makes a big difference.

GamesBeat: The developers and the hobbyists seem to be the ones that are excited about the pre-HD version. The E3 HD version seems like the one that could get consumers excited.

Iribe: That’s one of the components that it needs to have. There are still a few other components to it that we haven’t openly talked about yet, that we’re working on internally. We’re just not ready, at a prototype level, to talk about them yet, but internally we have a lot of stuff working. That will tie it together. We’ve been open about that those key things are, whether it’s positional tracking or a VR input. This is VR vision right now, but what is VR input? We’re looking at trying to solve a few of those pieces.

When that comes together, we’ll be able to get consumers excited. The experience will feel very comfortable. There will be enough content out there that there’s something to play, as opposed to just a demo from Oculus. You pair that content with the technology wrapped up in a consumer-ready experience and it should be pretty awesome.

Above: A workbench at Oculus VR

Image Credit: Dean Takahashi

GamesBeat: How soon do you sense this coming now, as far as being able to get something out to consumers and to have games from developers?

Iribe: That’s the big question. We’re still not at a place where we can announce a consumer date. We have ideas and goals in mind, but we want to set expectations right. We’ve tried to be pretty vocal about this. We want to get it right. We’ve got one shot at it, especially with the consumer market. If you’re going to put a VR experience out there again, this time it better work, so let’s make it as good as we can.

Now, I would say, we’re getting pretty close, especially with Valve’s help. We do feel like we know what consumer V1 could look like. It’s a matter of, how do we finalize all of those parts and make them economical and manufacture them? How do we pull all that into a consumer product? Hardware is hard. It’s still a challenge. It’s going to take some time to get it right. It’s not many years away, but it’s more than a few months away.

GamesBeat: The motion sickness part, do you feel like you’ve got that under control?

Iribe: Palmer can’t seem to get sick to save his life. I’m the most sensitive guy in the office, which tends to work out well. If one of the upper bosses is one of the most sensitive, we have to get it right. It’s going to be a combination of us improving the tech – it can get better. Right now it has orientation only. When you add positional tracking, it does tie it together. In the game, you’re trying to simulate where your eyeballs are. You want that to be as close to where your real eyeballs are as possible.

Luckey: That’s a hardware thing. You want the virtual experience to match up to what the real-life experience would be as closely as possible. Any kind of disparity between the two is potentially going to make people feel disoriented.

On the other hand, there are some things that make people sick in real life, and they’re not going to stop making people sick just because they’re in the virtual world instead. Developers have to be careful. One common thing you’re seeing in games is these cinematic sequences where they take control of the camera and move it all over the place. People don’t handle that real well. They wouldn’t handle it well in real life either. If you do it in VR, it makes people feel bad really fast. You have to be aware of it when you’re developing VR content, what the limitations are when you put someone in a virtual environment.

Above: Oculus VR

Image Credit: Dean Takahashi

Iribe: Made-for-VR content is what’s going to be important.

GamesBeat: With your GDC demos, I played Hawken just fine. I could jump around and all that.

Iribe: You were in a cockpit there. You had a point of reference.

GamesBeat: The car racing demo made me woozy. I don’t know what that means, though.

Luckey: The car demo was just really poorly done. The physics were terrible. The control was terrible. Everything about it was pretty hokey.

GamesBeat: That seems to matter. The content really has to suit the technology.

Iribe: Your brain wants things correct. You really do need things to add up correctly. Then your brain says, “I’m gonna be okay with this for now.”

GamesBeat: So this is not the type of thing where you can just take the game and marry it to the hardware.

Luckey: Not instantly. You could potentially take a game and adapt it to the hardware, but it’s not just going to be a straight-up, “Oh, you can look around in the game now. All done.”

Iribe: The most successful experiences are going to be made for VR. That’s a reality. We’re already seeing that with things like EVR. When you try EVR, or even Hawken, it moves slow enough. It has the right pace and the cockpit. It really starts to feel much better inside. EVR is that much better. They’ve put thousands of people through the demos at Fanfest and E3. They’re in there for 10 or 20 minutes and people aren’t complaining. People are enjoying it. It’s definitely possible. It just takes custom content.